9706_w24_qp_22 - revisedeck

1

Ahmed is a sole trader. He does not maintain full accounting records. He provided the following information for the year ended 30 June 2024. Payments and receipts during the year included the following: $ Carriage outwards 1 040 Cash sales 5 200 Electricity charges paid 1 920 General expenses paid 3 600 Motor expenses paid 4 250 Payments to credit suppliers 61 240 Receipts from credit customers 102 600 Rent paid 16 800 All purchases are made on credit. Assets and liabilities included the following: At 30 June $ $ 8% bank loan – 3 000 Allowance for irrecoverable debts 1 055 ? Inventory 12 640 ? Other payables: Rent accrued Electricity – Other receivables: Rent prepaid – 1 800 Trade payables 8 800 6 300 Trade receivables 21 100 18 500 Inventory at 30 June 2024 was valued at $15 880. This included damaged items costing $960 that will be sold for $1100 after repairs costing $340. During the year Ahmed took goods costing $420 for his own use. An irrecoverable debt of $300 is to be written off. Ahmed wished to maintain the allowance for irrecoverable debts at the same rate as in the previous year. The 8% bank loan was taken out on 1 April 2024. No interest has yet been paid. Ahmed started the business on 1 July 2022. On that date he purchased a motor vehicle for $24 000 and fixtures and fittings for $3200. No other non-current assets have been purchased since that date. 10 Depreciation is to be provided as follows: Motor vehicle: 20% per annum reducing balance method Fixtures and fittings: 10% per annum straight-line method. 11 Motor expenses paid included $1140 for motor insurance for the twelve months to 31 August 2024. Prepare the statement of profit or loss for the year ended 30 June 2024. Use the space provided on page 4 to show your workings. Ahmed Statement of profit or loss for the year ended 30 June 2024 Explain, with reference to an accounting concept, why adjustments 5, 6 and 11 on page 2 were to be made to the financial statements. Adjustment 5 Goods for own use Concept Explanation 6 Irrecoverable debt Concept Explanation 11 Motor insurance Concept Explanation Additional information Ahmed has been offered the opportunity to purchase larger premises for $85 000 which would allow him to increase the sales revenue of the business. As he does not have sufficient personal funds to make the purchase, he is considering two options. Option 1 Apply for a bank loan to cover the whole purchase price. The bank loan would be repayable over ten years and interest would be payable at 8% per annum. Option 2 Ahmed’s brother has offered to join the business as an equal sharing partner. He would introduce all of the cash required to complete the purchase in exchange for a 50% share of future profits. Advise Ahmed whether he should go ahead with either of these options. Justify your advice by discussing both financial and non-financial factors.

1. Financial accounting (AS Level) → 1.5. Preparation of financial statements

1. Financial accounting (AS Level) → 1.3. Accounting for non-current assets

Open

2

W Limited provided the following extracts from the financial statements at 31 August 2024. Statement of profit or loss for the year ended 31 August 2024 $ Sales revenue 720 000 Opening inventory 76 000 Operating expenses 165 000 Finance costs 20 000 Taxation 16 000 Statement of financial position at 31 August 2024 $ Trade receivables 66 000 Share capital 550 000 Retained earnings 95 000 8% debentures (2026) 45 000 Current liabilities 37 000 The following information is also available: • cash sales were 15% of total sales • the gross profit margin was 35% • the rate of inventory turnover was 6.4 times. Calculate the trade receivables turnover for the year ended 31 August 2024 showing the formula used. Formula Calculation Explain the difference between gross profit margin and mark-up. State the formula for the rate of inventory turnover . Calculate the value of the closing inventory at 31 August 2024. Calculate, to two decimal places, the return on capital employed for the year ended 31 August 2024 showing the formula used. Formula Calculation Additional information The directors of W Limited use accounting ratios to compare the company’s progress with other businesses. They are aware that such comparison should only be made with companies in similar business sectors but are also aware that such comparison has limitations. State three other limitations of accounting ratios.

1. Financial accounting (AS Level) → 1.6. Analysis and communication of accounting information

3. Financial accounting (A Level) → 3.1. Preparation of financial statements

3. Financial accounting (A Level) → 3.5. Analysis and communication of accounting information

Open

3

The draft profit of L plc for the year ended 30 June 2024 was calculated at $58 340. The directors have discovered some errors in the accounting records. The draft profit had been calculated before correcting the following: Closing inventory had been overstated by $2800. Returns outwards of $570 had been debited to the Purchases account. Distribution costs included a payment of $4320 for advertising covering the three years ending 31 March 2027. Calculate the revised profit for the year ended 30 June 2024. Additional information The share capital of L plc comprised ordinary shares of $0.50 each. During the year ended 30 June 2024 the following transactions took place. Date Transaction 31 August 2023 Paid a final dividend of $0.05 per share on all shares in issue at that date. 31 December 2023 Made a bonus issue of one ordinary share for every seven shares held at that date. The directors decided to leave the reserves in the most flexible form. 31 March 2024 Paid an interim dividend of 2% on all shares in issue at that date. 31 March 2024 Made a rights issue of one ordinary share for every four shares held at a premium of $0.20 per share. The rights issue was fully taken up. 30 June 2024 Property was revalued downwards by $8000. The value of ordinary share capital at 30 June 2024 was $200 000. Calculate the value of ordinary share capital at 1 July 2023. Complete the statement of changes in equity for the year ended 30 June 2024. L plc Statement of changes in equity for the year ended 30 June 2024 Share capital $ Share premium $ Revaluation reserve $ Retained earnings $ Total $ At 1 July 2023 19 200 6 500 18 400 Final dividend Bonus issue Interim dividend Rights issue Revaluation Profit for the year At 30 June 2024 200 000

1. Financial accounting (AS Level) → 1.5. Preparation of financial statements

Open

4

Martina produces and sells a single type of product. The following budgeted information is available for the year ending 30 November 2025. $ Sales revenue (3500 units) 542 500 Direct materials 87 500 Direct labour 105 000 Production overheads 126 000 Selling overheads 157 500 Profit for the year 66 500 Variable production overheads are budgeted to be $4 per unit. Selling overheads include 5% sales commission. All remaining selling expenses are fixed. Calculate: the budgeted contribution per unit the budgeted fixed overheads for the year the budgeted margin of safety in units. Additional information Martina feels that production and sales could be increased by 20% by improving the quality of the product. She plans to make the following changes. Purchase new machinery at a cost of $60 000. The machinery will have an estimated useful life of five years and a residual value of $10 000 at the end of its lifetime. Undertake an advertising campaign at a cost of $1250 per month. Reduce the selling price by $6 per unit. Purchase higher quality materials that will increase the direct material cost by $3 per unit. Direct labour hours per unit will reduce by 5%. Use of the new machinery will reduce the unit variable production overhead by 20%. Sales commission will remain at 5%, but commission on all units sold in excess of 3500 will be paid at 10%. Prepare a marginal cost statement for the year ending 30 November 2025 to show the revised contribution and revised profit for the year if Martina decides to go ahead with the plan. Martina Budgeted marginal cost statement for the year ending 30 November 2025 Workings: Advise Martina whether or not she should go ahead with the plan. Justify your answer by considering both financial and non-financial factors. Explain one advantage of cost–volume–profit analysis. Explain one reason why marginal costing is considered to be more useful for short-term decision making than absorption costing. Explain the effect on profit of using marginal costing rather than using absorption costing.

2. Cost and management accounting (AS Level) → 2.2. Traditional costing methods

Open